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BRILLIANT’S Leverage Analysis 393

Contribution 5,10,000
Less: Fixed costs 3,10,000
EBIT 2,00,000
Less: Interest 50,000
EBT 1,50,000

Contribution 5,10,000
(i) Operating Leverage = =  2.55
EBIT 2,00,000
EBIT 2,00,000
(ii) Financial Leverage =   1.33
EBT 1,50,000
(iii) Combined Leverage = Operating Leverage × Financial Leverage
= 2.55 × 1.33 = 3.39

Illustration 4.3.4
Sales Quantity / {dH«$¶ ‘mÌm 1000 units
Unit Price / BH$mB© ‘yë¶ ` 1,500
Variable Cost / do[aE~b H$m°ñQ> ` 800
Fixed Cost / {’$³ñS> H$m°ñQ> 5,00,000

10% Debentures / 10% {S>~|Mg© 4,00,000
12% Preference shares / 12% {à’$a|g eo¶g© 2,00,000
Equity share capital (8,000 shares) / B{³dQ>r eo¶a H¡${nQ>b (8,000 eo¶g©) 10,00,000

(a) Calculate the degree of operating leverage. / Am°naoqQ>J brdaoO H$s {S>J«r H$s JUZm H$s{OE&
(b) Calculate the degree of financial leverage. / ’$m¶Zo§{e¶b brdaoO H$s {S>J«r H$s JUZm H$s{OE&
Solution:

Particulars Amount
(`)

Sales (1,000 × 1,500) 15,00,000
Less: Variable Cost (1,000 × 800) 8,00,000
Contribution 7,00,000
Less: Fixed Cost 5,00,000
EBIT 2,00,000
Less: Interest 40,000
EBT 1,60,000